ASX edges up as nervy Wall Street ends losing streak

High rates hurt prices for investments, particularly those seen as the riskiest, most expensive or whose big growth is the furthest out in the future. They also raise the risk of a recession because they slow the economy.

After leaping in January, stocks broadly have slammed into a wall this month on worries that inflation isn’t cooling as quickly or as smoothly as hoped. A lengthening list of reports have shown the economy is in stronger shape than expected.

While that’s raised hopes about avoiding a recession in the near term, it’s also forced Wall Street to raise its forecasts for how high the Fed will take interest rates and then how long it will keep them there.

The latest economic data released on Thursday also suggested an economy with enough strength to encourage the Fed to press on with its “higher for longer” campaign on rates. The fear is that a strong economy could feed into upward pressure on inflation.

Fewer workers applied for unemployment benefits last week than expected, another indication that the job market remains resilient despite the fastest increase in rates in decades.

A separate report said the US economy’s growth was likely a touch weaker in the last three months of 2022 than earlier estimated. But it still grew at a 2.7 per cent annual rate.

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“Our belief is that it probably won’t be a repeat of the Great Recession. In terms of timing, it could actually be fairly similar to the recession of 2001. It could end up being fairly short and happens 14 months after the start of the bear market” for stocks.

Wall Street’s heightened expectations for rates and the Fed have been most evident in the bond market, where Treasury yields have shot higher this month. They eased a bit on Thursday to take some of the pressure off stocks.

The yield on the 10-year Treasury, which helps set rates for mortgages and other important loans, dipped to 3.88 per cent from 3.93 per cent late on Wednesday.